Off-Budget Borrowings
in India
Central Idea
Concerns: Short-term relief vs. overall fiscal health.
Recent challenge: Off-budget borrowings by states affecting fiscal health and transparency.
What is it?
Legislative Oversight: No scrutiny, outside the budget.
FRBM Act Bypass: Circumvention of borrowing limits set under the FRBM Act, 2003.
Definition: Debts by public sector units or special purpose vehicles, not directly by the government.
How is it
raised?
Borrowing by PSUs: Entities like oil marketing companies borrow for government projects.
Utilizing Savings: Example - shortfall in food subsidy met through a loan.
Bank Sources: Public sector banks used for off-budget expenses.
Issuance of Bonds: Implementation agency raises funds from the market.
Recent trends
Magnitude: ₹2.79 trillion in 2020-21, ₹1.71 trillion in 2021-22.
Concerns: Flagged by 15th Finance Commission and CAG for undermining fiscal transparency.
Recent Trends: Rampant, especially in states like Andhra Pradesh, Telangana, Kerala, Chhattisgarh, and Sikkim.
Reasons for
prevalence
Public Corporations: Separate legal entities borrowing independently.
Special Purpose Vehicles (SPVs): Independent borrowing for specific projects.
Contingent Liabilities: Guarantees provided by the government for loans.
Infrastructure Projects: Funding large projects without affecting reported deficit or debt levels.
Policy
Measures
Monitoring and Reporting: Regular reporting on financial activities.
Debt Sustainability Analysis (DSA): Regular assessment of overall debt burden.
Conditionalities for Central Assistance: Attached conditions on financial assistance.
Coordination with Fiscal Authorities: Effective communication for collaborative solutions.
FRBM Act: Sets targets for fiscal indicators, deviations subject to penalties.
Conclusion
Immediate challenges for some states with long-term goals for fiscal transparency and sustainability.
Crucial for the overall health of India’s economy.
Clampdown on off-budget borrowings for greater fiscal discipline.